A BUSINESSMAN friend asked me the other night about the prospects for the economy.
I told him Malaysia would be in for a robust year if the Barisan Nasional won big in the coming general election and if there was no external shock.
Bank Negara will be releasing figures tomorrow on the fourth quarter (Q4) 2003 economic performance. The indications are that the Q4 growth will be a very good figure.
This will push up overall growth for 2003. Many economists are expecting overall growth for last year to be 5%, compared with the government’s earlier projection of 4.7%.
Now, a 5% increase in gross domestic product (GDP) is already a very encouraging result, given the challenges of last year – the Iraq war and the SARS outbreak which dealt a particularly devastating blow to the world’s tourism and hotel sectors.
But as the strong fourth quarter results of British Airways, Qantas, Singapore Airlines and Malaysia Airlines demonstrated, the world’s airlines are bouncing back.
And if you have visited one of Kuala Lumpur’s five-star hotels or megamalls lately, you will agree that business is good.
Malaysia is also lucky because palm oil prices and oil prices have remained high. Unlike most East Asian countries, Malaysia is a big net exporter of oil and gas.
Indeed, such was the strength of the rebound in the second half that I would not be surprised if Malaysia’s GDP exceeded 5% for 2003.
Looking ahead, the global economy for 2004 is expected to be stronger than 2003.
The surprisingly strong Q4 growth for Japan indicates that the world’s second biggest economy may be finally coming out from its 10-year stagnation. China continues to steam ahead with growth rates of 8% to 9%, and India is not far behind.
And China is pulling Hong Kong out of the doldrums. The Hong Kong Stock Exchange has done extremely well in the past year; as a result we are seeing fewer street protests against Chief Executive Tung Chee-hwa. Why protest when there is easy money to be made?
According to Federal Reserve Bank chairman Alan Greenspan, the US economy could grow by as much as 5% in 2004. President George W. Bush will see to it that the economy won’t blow his re-election hopes as it did for his father.
Given the favourable global outlook, the prospects for the Malaysian economy for 2004 and beyond are promising.
Finally, the country is putting behind the Asian financial crisis of 1997-98. Malaysia is moving back to the path of sustainable economic growth.
Although one must not expect to see a return of the high growth (8% to 9%) of the early 1990s, I believe Malaysia can grow by 5.5% to 6.5% over the next two years.
Economists are more concerned about prospects for 2005 than 2004 because whoever is elected president in the United States this November will have to deal with the twin deficits (budget and trade) and rising interest rates.
Action to cut the twin deficit and increase interest rates will dampen the US economy (in the short term) and this will impact on world economic growth.
The Kuala Lumpur stock market has already factored in some of good economic news, having risen by nearly 8.5% since the start of the year to 861 points – the highest in more than four-and-a-half years.
Foreign funds are returning to Malaysia, and the largest pension fund in the United States, the California Public Employees Retirement Scheme, CalPERS, has reinstated Malaysia to its portfolio.
Frankly, I don’t see the CalPERS’ decision as a big deal, although fund managers think so; because in the first instance, CalPERS made a very silly decision to take Malaysia off its portfolio for alleged human rights and transparency issues just when the country was emerging from the 1997-98 financial crisis and addressing those issues.
Foreign diplomats tell me investors from their countries with businesses in Malaysia are also happy that the Government is cracking down on corruption.
For a long time, foreign investors have highlighted two complaints about Malaysia: red tape and corruption. Now they see both these issues being addressed vigorously.